In this article, we investigate the dynamic evolving behaviors of the probability of firms' issuing seasoned equity offerings (SEO) by using the Cox proportional hazard model with frailty effects and robust variances. The technique allows us to study the factors that influence the firms' SEO decisions and estimate the probability of issuing SEO in the market by analyzing each individual firm's behavior without normality assumption on the variables. The empirical evidences show that among them, market-to-book ratio is not significantly related to the possibility of a firm to issue equity, so there is little empirical evidence which supports market timing theory. Nevertheless, if the return in the previous period is considered instead, it is significantly positively related to the probability. It implies that the managers want to time the market but it is too late for them to chase the market since it turns abruptly. That explains why there are negative abnormal returns after equity offerings, as is well documented in the existing financial literature.
Advances in Investment Analysis and Portfolio Management AIAPM, Vol.8, pp.41-65